State Farm is Kickin’ Ass!

December 28, 2007 by
Filed under: Collision Repair Industry 

Still cocky from their paid-for victory in the aftermarket parts suit, State Farm feels it has the collision repair industry by the short hairs.  They’ve played the good cop for many years, but all that is now changing. We have only ourselves to blame. For years we’ve gratefully accepted higher labor rates and fairer treatment from State Farm when compared to most other insurers. For years we’ve failed to capitalize on State Farm’s perceived generosity by not holding other insurers to the same standards and fair play. State Farm finally wised up and realized that it was giving money away because most of you have been willing to lay on your backs for much less.

Who can possibly blame State Farm for changing their business model? What incentive have we given them to continue being the good guys? When their new DRP program was rolled out many of the biggest whores in our industry complained while at the same time they continued to work for other insurers under other similar DRP contracts. If you remember, I refused to sign and walked away from State Farm’s program. No longer was it a direct bill relationship like it had been in the past. State Farm copied the worst contract out there and then pushed it a step or two further, because after all, many of us would sign anything to avoid having to do our own marketing.

State Farm is convinced that you haven’t bottomed out. Their betting that you will continue to hand over more control of your businesses to the insurance industry. Instead of being on the outside looking in on this feast other insurers have been having, they now want their share of your innards and more.

Their recent “parts procurement” program is State Farm’s attempt at your tenderloins. Long being taboo, attacking your parts profits is now fair game. It’s important to understand that if they succeed, every other major insurer will follow their lead. We must stop this dead in its tracks or parts profits will be as tightly controlled as labor rates.

State Farm’s collision industry liaison, George Avery, assures us that their pilot program is aimed at increasing efficiency. You can believe that if you want to. But just remember, this is the same George Avery who headed CIC’s “gap” study and eventually helped draft the declaration of “fill, block and featheredge.” For this he should be applauded. But what does it say when his own company refuses to honor the “gap” on its estimates? Either George Avery is a patsy or a fraud. I’ll not make that judgment because I’ve never met him, but when Bill Clinton’s Press Secretary endlessly repeated, “The President did not have sex with that woman” that Press Secretary’s credibility was destroyed.

Their parts procurement program has more to do with State Farm controlling the repair process than it does with efficiency. They’ve learned by watching Progressive that having complete control of the repair process controls costs. Controlling costs impresses investors and keeps share holders happy. But because State Farm has played good cop for so long, they haven’t learned the negative effects of this cost-containment-at-any-price attitude.

State Farm is using OEConnection to manage its parts purchases. For those of you too busy losing money to have heard about OEConnection, it is an online service that is free to collision repairers, and has been for many years. Dealers wishing to participate pay a fee. Using your estimating software you use the EMS feature to automatically import all the parts information from the estimate into OEC’s software. With the click of a mouse your parts are ordered from the dealer you choose. Do you want to save money on long distance phone calls and faxes? OEC sends the order to your dealer either via the internet or by fax, and it doesn’t cost you a penny. It’s smart enough to order supplement parts only so you don’t order the same parts twice. I use it now every day. It’s quick, easy and accurate. If this sounds like an advertisement for OEC, that’s only because it works, it’s free, and you don’t need no stinkin’ State Farm to use it. Electronic parts ordering has been around for years, it’s available to everyone and it will make your parts ordering more efficient. State Farm knows the majority of shop owners don’t know about OEC or electronic parts ordering and are using your ignorance to make it appear that they have a way to make your shop more efficient.

Electronic parts ordering won’t do squat for your efficiency if you continue to run your shop like a cave man. You can be just as accurate and efficient picking up the phone and ordering parts. The key to parts ordering efficiency is having an accurate blueprint of what you need before you begin the repair. That’s not something that State Farm or OEConnection can do for you. So as you can clearly see, increased efficiency as an excuse for parts procurement control is a phony excuse. Those shops who don’t blueprint a repair are not going to be any more efficient ordering parts electronically. Using increased efficiency as a lure, State Farm is hoping to catch those of you who are less sophisticated, who don’t know your costs of doing business, who don’t understand the evils of insurer controlled collision repair. You’ve heard the saying, “There’s a sucker born every day.” Well, forty or fifty years ago there was a whole bunch of suckers born, and they are now running many of the collision repair shops in the country.

OK, so State Farm has convinced you that they are the answer to increased efficiency. We all believe that increased efficiency leads to increased profits. Increased profits for who? Sure, State Farm has assured us that they fully understand the importance of parts profits to the health of a body shop. And they have claimed that their three percent discount will come directly from the OEM’s and not affect your margins. Consider this. GM lost as much money last quarter as the total gross sales of every body shop in the country combined for 2006. Who do you think will be the ultimate payer of that 3% rebate to State Farm?

Aftermarket parts will be next. Right now the average margin for aftermarket parts is 40%. That’s much higher than you’ll get from any OEM. And it’s double what you get for used parts. A 25% mark up only generates a 20% margin. Hell, we’ve been accepting that forever. Why should insurers pay us 40% margin on aftermarket parts. With Keystone buying up the major aftermarket suppliers, you would think that their monopoly would prevent them from bending over for the insurance industry. Look what happened with the OEM’s. Aftermarket parts are next in the insurer’s sights. Count on it.

Then we have the State Farm credit cards. Welcome to the nanny state! Hey, here’s an idea! Vote for Hillary Clinton and you can get government paid-for health care too. That way you’ll have absolutely no responsibilities!

State Farm is handing out credit cards to participants in this pilot program for  purchasing parts. I guess the idea is to keep your cash in your bank account and use credit to purchase your parts. How much you wanna  bet State Farm is making money every time you use one of those credit cards? And remember, it cost the dealer three or more percent to accept that credit card. The dealer is going to want to balance off that loss by reducing your discount. How’s that increased efficiency affecting your profits now?

Pay close attention now. Do what ever you can to sharpen your reading comprehension skills for a minute. If you participate in this part procurement program you will be directly contributing to the eventual loss of parts profits from collision repair. You will be complicit in the further demise of our industry. I can’t stress enough how important it is to ensure this pilot program fails miserably. Only you can make that happen. If you are approached by State Farm to participate in this heresy, politely show them to the door. If you don’t you might as well show yourself to the door and hand over your keys to the State Farm representative and avoid the prolonged suffering.

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Comments

7 Comments on State Farm is Kickin’ Ass!

  1. Steve Behrndt on Fri, 28th Dec 2007 1:08 pm
  2. John,

    You have written a great article!

    Problem is, as you well know those participating really can’t get out of the situation. They are stuck with State Farm as their partner due to building their business with State Farm’s and other insurance partner’s customer volume. Loose State Farm and they loose their volume. How many shops who are contracted can stop without State Farm’s cash flow? Not accepting State Farm’s new deal is not an option for them. State Farm knows our industry much better than we do. I do not see State Farm loosing here as much as I would like them to fail. The collision repair industry is too fragmented to unify against State Farm and the others.

    Solution:
    The only method of survival for those seeking change is to learn a new way of operating outside of insurance company relationships. A total reversal of what has transpired over the past 40 years. Those true business people who can walk away from the insurance industry and absolutely refuse to accept their estimates and documents can win. Yes, they will most likely downsize and change in directions never thought of but is is possible and profitable. There is another direction to follow………..

    Due to the manner in which the collision repair industry has operating over the past 40 years it will be hard for many collision repair professionals to grasp what I have written. For this reason I recommend interested shop owners seek out independent collision repairers who are successfully operating. Please be willing to change when you call – You can!

    Anyone with questions can call me @ 610-269-1610 or email @ steve.behrdt@verizon.net

    Steve Behrndt Pa.
    610-269-1610

  3. Scot Strong on Mon, 31st Dec 2007 7:39 am
  4. John:

    OE Connection may have made a huge mistake by partnering with the Farm. Almost every OEM manufacturer has partnered with OE Connection for locator service and OE Connection has their “blessing” for dealers to partner up with them for electronic parts ordering by shops. The dealer pays a monthly fee for each franchise (in other words if one shop wants to send me two parts orders for two of my carlines I have to pay two seperate monthly fees). When the majority of dealers learn that their “partner” is helping just a few “whore dealers” get the bulk of the electronic parts orders from State Farm shops, there WILL be a mass defection from their services. This undoubtedly will be communicated up the line to the OEMs and could cause problems with their OEM relationships eventually.

    Scot Strong

  5. Itsme on Tue, 30th Sep 2008 7:55 am
  6. I’m not in the body shop business, but I am involved with the computer industry. I’m helping a friend of mine by doing a website for his business. I know that he is a State Farm Select Service bodyshop.

    The next time I talk with him I’m going to ask him if he is part of this program, and if so, what he thinks about it.

    Thank you for taking the time to point out issues like this.

  7. Standard Insurance on Wed, 19th May 2010 6:32 pm
  8. Hmmm… after reading some of the comments I wonder whether they in reality read the blog posts and reports before leaving your 2 cents or maybe they just look at the title of the entryand type the very first thought that comes to mind. regardless, it is nice to browse through clever commentary from time to time instead of the exact same, old blog vomit which i generally notice on the internet

  9. William Hawkins on Mon, 5th Dec 2011 6:42 pm
  10. Great article, but it does not say anything that we in the collision repair industry don’t already know, it just puts the target squarely where it needs to be – on the biggest Bear in the forest and that is State Farm (with GEICO and Allstate as close seconds). As big an issue is the affect of the insurance lobbyists in State House Capitol’s around the country and their encroachment on the operations of the various Department’s of Insurance. $$ talks and they have it. We on the other hand, well it’s just sad what has happened to our industry and we have no one to blame but ourselves. In the end the real loser will be the American consumer, because no one who cares about performing quality repairs will want to keep railing against that windmill (Big Insurance) with a touthbrush, and will find other ways to spend their time on this earth – all that will be left will be DRP whores and sub-standard repairers. Boo Hoo.

  11. volvo auto on Sun, 5th Jan 2020 5:28 am
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  13. venlamonster.Tumblr.com on Fri, 10th Apr 2020 6:57 am
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